BB Biotech (SWX:BION) increased its stake in the US cancer biotech MacroGenics by a fifth just over a week ago, seemingly taking advantage of a fall in the company’s share price in the wake of the ASCO scientific meeting earlier this month. Hitherto, MacroGenics ranked in tenth position in BB Biotech’s portfolio, accounting for 3.6% of portfolio value at the last balance sheet date.
The Swiss investment company’s new holding is 6m shares, equivalent to a 10% stake in MacroGenics, according to an SEC 13F filing made on 9 June. QuotedData uses the 10% level as a rough guide to indicate BB Biotech’s highest conviction holdings, and hence MacroGenics (MGNX) joins three other companies in the portfolio that meet this threshold – Radius Health (RDUS), Esperion (ESPR) and Molecular Templates (MTEM). Two others, Kezar Life Sciences (KZR) and Scholar Rock Holding (SRRK), are just a shade below this.
MacroGenics’ stock has fallen by c30% in the past month as investors responded to the disclosure of a seemingly concerning high discontinuation rate in early clinical trials with MGC018, a product on which there is a lot of attention. Up until ASCO this year, MacroGenics been quite a strong performer; its stock is now down by around 7% year to date.
BB Biotech appears to have used the declines in biotech stocks this year as an opportunity to increase its stakes in at least two other high conviction names. It reported an increased holding in Esperion in a 13F filing on 19 May – the holding was increased to 4.48m shares (from 3.95m reported on 31 March), equivalent to 15.9% of that company. And an earlier filing for Molecular Templates, dated 7 April, shows an almost 50% increase in its holding to 9.5m shares, equivalent to a 17% stake in the company.
Esperion launched a treatment for elevated cholesterol in the US, but has been struggling to gain traction in the context of the COVID pandemic. For some time, it has been one of the highest profile shorts for many investors, with a short interest ratio of 34%, the fourth amongst all stocks included in the Russell 2000 index. After declining over much of 2021, the stock is up by 25% in the past five days. In the case of Molecular Templates, it looks like BB Biotech raised its stake after the share price fell heavily in April, when the company suffered a clinical setback.
[QuotedData comment: These three large increases in shareholdings in high conviction stocks highlight a facet of BB Biotech’s approach that contrasts with that of many other biotech funds. The company is free to take advantage of – what it hopes will be short-term – falls in the share prices and is also relatively unconstrained despite in some cases having very large individual shareholdings in investee companies (holdings representing 10-20% of an investee would be highly unusual elsewhere). Both come about from the fact the manager’s performance is not benchmarked against a specific stock index, which allows them greater freedom. The share price moves also, of course, highlight the inherent stock price volatility in the biotech sector, which underlines the desirability for most individual investors to take a portfolio approach that can be best achieved by collective investments such as BB Biotech.]